Is your Diwali sparkling extra bright with a new car in your garage, waiting to be out on the roads and take you places? But before you embark on your dream drive, or any drive for that matter, make sure your car is protected by a robust 4 wheeler insurance policy. Why? Firstly, Indian law mandates third-party insurance for all vehicles. Secondly, because it ensures financial protection in the face of a mishap. While the process of buying an insurance policy is fairly easy, comprehending types, terms and conditions can prove tricky for those not familiar with essential insurance terms. Here’s everything about essential insurance terms you must know:
- Third-party liability policy
Mandated by law, the Insurance Regulatory and Development Authority of India (IRDAI)regulates the premium for the basic third-party liability policy to make sure it remains affordable for all. The policy covers only third-party liabilities and does not cover damage to the policyholder’s car. The car insurance companies have no control over the premium. Some common terms are:
- First-party–the policyholder or buyer of the policy
- Second-party– the insurance company or the insurer
- Third-party– anybody who is not part of the policy contract and demands compensation against injury to self or damage caused to his/her property by the insured car.
Also known as a liability-only policy, it covers:
- Damage to the vehicle or the property of the third party
The insurer will compensate for any damage to the vehicle or the property of a third party, up to a specific amount, caused due to an accident involving the insured car.
- Injury, disability, or death of the third party
If an individual is injured in an accident due to your fault, he/she would get compensated. The policy will cover the financial expenses for their hospitalisation and treatment. The insurer will pay monetary compensation to the family of the deceased in the event of permanent disability or the death of a third party due to an accident.
- Legal liabilities
In most accidents, there is always a possibility of legal issues raised by a third party against the car owner/driver. Your insurer will take care of all the legal liabilities faced by you in case of an accident.
This policy is enough as long as your car is not damaged, as it will not cover damage caused to your car. If you want to enhance coverage to include damage to your car then you must opt for either own damage policy or a comprehensive policy.
- Own damage (OD) policy
It covers damages to your car due to accidental or non-accidental causes such as:
- Damage due to an accident or while in transit
After an accident, you can take the help of your insurer to tow your vehicle to a network garage and get it repaired. Under a cashless claim, the insurer will directly pay the repair cost to the workshop. If the car gets damaged while in transit via rail/road/lift/elevator, you will be compensated for the cost of the repair or the replacement of parts.
- Natural calamities
Under the OD policy coverage, the car would be financially covered against natural disasters such as floods, landslides, rockslides, and severe weather conditions such as storms, cyclones, earthquakes etc.
- Manmade hazards
Damage caused due to manmade incidents such as riots, strikes, civil disturbances, torching thecar and vandalism is covered under the OD policy.
- Theft or damaged beyond repair
In case your car gets stolen or is totally damaged, you will begiven monetary compensation equivalentto the Insured Declared Value or IDV of the car, as per the policy document.
Note, an additional own damage policy means an additional premium since you will have to purchase it over and above the mandatory third-party policy. Also, own damage policy excludes depreciation, regular wear and tear, and certain non-accidental damages. A combination of third-party and own damage policy may not suffice if you are seeking exhaustive coverage.
- Comprehensive car policy
A comprehensive policy contains the salient features of both a third-party and own damage cover. This package policy provides extensive coverage. Besides, you can buy add-on covers to further enhance the coverage and meet your needs. For imported or expensive cars or even a brand-new sedan or SUV, the cost of replacing or repairing parts would be quite high. So, investing in comprehensive car insurance with suitable add-ons is a good option.
Since you’re now familiar with the basics of car insurance, you can decide which specific policy and add-on cover you would want for your car. Today, based on your budget and needs, there are many options for car insurance in India. Choosing plans with the lowest premium may not be the right decision as they do not cover most situations. So, select a policy that would provide maximum coverage even if the premium is high.
While browsing through the details of a policy, you will come across terms such as IDV and No claim bonus quite often. IDV, in simple terms, is the current market price of your car. IDV is the ex-showroom price of a car minus the depreciation. Depreciation is the decrease in the market value of your car due to ageing and wear and tear from regular use. With every passing year, the IDV decreases until it becomes less than 50% of the price at which you had bought the car. A No Claim Bonus (NCB) is a discount that your insurer may provide
on own damage (OD) or comprehensive policy for completing a claim-free year. This is an additional discount over and above any other that you may have received due to purchasing the policy online and/or installing safety devices. It begins after you complete one claim-free year at a rate of 20% of the renewal premium amount. The NCB can go as high as 50% of your premium amount.
Depending on the condition of your car, decide which car insurance to buy and select one that provides maximum coverage as per your requirement and budget. Make sure you do your research well, as it will set you up for worry-free ownership of your dream car.
